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Vertex Pharmaceuticals Incorporated Message Board

  • brokenideas brokenideas Nov 2, 2012 8:02 PM Flag

    Vertex strategy has failed as a business

    The sequential drop of Incivek is really dramatic, from $456.8 million (Q4 last year) to $356.9 million in the first quarter of 2012, $327.7 million in the second quarter and $254.3 million in the latest quarter. At this rate next quarter it will be below $200 million, and in Q1 of 2013 will be in the range of $100-$150 million, so a blockbuster has become a $400 million/year drug in 2013. If we count for Kalydeco selling in the range of $60/quarter, it will be an additional $240 million/year in 2013, counting some royalties in the range of $10 million per quarter, it is $40 million more for 2013.

    With my counts, 2013 revenues will be in the range of $650-$700 million that is WELL BELOW the burn rate of Vertex, estimated to be in the range of $1.2 billion ... so next year Vertex will lose $500 million ... even when they have $1.2 billion in cash, at that rate in 2015 they will run out or money.

    I have to say, as a long term holder, this company has been so disappointing in the last 3 years that is embarrassing. A lot of hype with the mantra of "The Science of Possibility" but it seems that for Vertex the concept of "possibility" is not an idea they like to convey to the investors, it is not an idea they apply to run the business wisely.

    Someone at Vertex management needs to understand that it is NOT ONLY about curing/treating people, but about making money ... if the is no money there is no business.

    Clearly Vertex needs to reorganize itself and focus R&D only on activities that are priority for revenue making at the company. This is a company which R&D is totally unfocused and ineffective, and because of that they have a "fat" organization with incredible burning rate ... look at the unfocused R&D they describe in the website: Cystic Fibrosis, Infectious diseases, including viral infections, such as influenza, and bacterial infections, Immune-mediated inflammatory diseases, such as rheumatoid arthritis, Cancer, Inflammatory Bowel Disease ,Neurological disorders, including pain, Huntington’s disease and multiple sclerosis.

    Just count them, these are 12 different DISEASE AREAS ... are they nuts!

    They are so full of themselves that they think they can compete in 12 disease areas simultaneously ... how arrogant, how pathetic. No wonder they lost the boat with HCV all oral regimen and now they play catchup ... how could they compete in HCV while doing R&D in 12 disease areas at the same time?

    They work in more disease areas than Big Pharma!! Are they crazy? - It is time to fire Peter Mueller and the rest of the R&D heads, they have failed to focus and create an efficient R&D organization. They live in "Lala land", thinking that losing $500 million/year is permissible while being unable to create a consistent pipeline of drugs ...

    Regarding the CEO, who become CEO just a year ago, he has failed to forecast revenues and earnings each of the quarters he had been CEO ... really amazing.

    This is a company with two drugs approved which is unable to make a profit and which will need to be run as a biotech (e.g. money loser) for the next few years given they poor management of the business ... they have not even managed to earn profits to compensate all the R&D they have done for 20 years ... they have spent $5 billion in R&D so far in the history of the company and it will be difficult that they recover even 50% of that as profits ... incredibly disappointing ...

    After so long, and so much money spent in R&D and it all boils down to the success of the next phase III trial for CF-combo ... Vertex is playing russian roulette ... embarrassing ... and disappointing.

    Why nobody at Vertex management becomes accountable for that?

    It is time to change the strategy, and cut down research and use the money to license clinical compounds ... only that could work for Vertex to create a compelling pipeline ...

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • a fact is that Vertex Boston is preparing substantial staff layoffs which will impact throughout departments. In addition their last quarter cash has been enhanced by the non payment of suppliers.

    • you assert:
      "Clearly Vertex needs to reorganize itself and focus R&D only on activities that are priority for revenue making at the company. This is a company which R&D is totally unfocused and ineffective, and because of that they have a "fat" organization with incredible burning rate ... look at the unfocused R&D they describe in the website"

      I dare to contradict your assertion. It seems to me that you don't understand VRTX approach in drug discovery, which is primarily based on mechanism of action. To learn more about this discovery approach just read Boger's book "The billion dollar molecule".

      As an example, look at VX-509, a molecule that selectively inhibit Janus kinase 3, or JAK3, which is an essential part of the underlying disease mechanisms that cause inflammation, and as such may be used in different diseases, not only in rheumatoid arthritis. VRTX development pipeline is highly focussed: HCV, CF, VX-509 and VX-787. The vast majority of VRTX R&D spendings is focussed on these four programs. The rest is exploratory research, which money wise is peanuts compared to the clinical programs. VRTX has one of the most balanced R&D portfolios not only in Biotech but in Big Pharma as well.

      I share your frustration about the share price. Clueless analysts like the one from GS unfortunately have the power to heavily influence the share price. But this is based on amateurish understanding of what the real potential of VRTX is. So if you are in this game for trading, follow the sentiment of the analysts. If you are in this game as an long term investor, do your own due diligence and trust the science, you will be rewarded by a high return.

      Sentiment: Strong Buy

    • Brokenideas,
      "Someone at Vertex management needs to understand that it is NOT ONLY about curing/treating people, but about making money ... if the is no money there is no business.

      Clearly Vertex needs to reorganize itself and focus R&D only on activities that are priority for revenue making at the company. This is a company which R&D is totally unfocused and ineffective, and because of that they have a "fat" organization with incredible burning rate ... look at the unfocused R&D they describe in the website: Cystic Fibrosis, Infectious diseases, including viral infections, such as influenza, and bacterial infections, Immune-mediated inflammatory diseases, such as rheumatoid arthritis, Cancer, Inflammatory Bowel Disease ,Neurological disorders, including pain, Huntington’s disease and multiple sclerosis.

      Just count them, these are 12 different DISEASE AREAS ... are they nuts!

      They are so full of themselves that they think they can compete in 12 disease areas simultaneously ... how arrogant, how pathetic. No wonder they lost the boat with HCV all oral regimen and now they play catchup ... how could they compete in HCV while doing R&D in 12 disease areas at the same time?"
      ---------------------------------------------------------------------
      As a long time holder of VRTX I agree with you. I must say there has been a lot of incompetency in all aspects of vrtx management from the business side to the scientific side.

      What is so disappointing is the fact that they have all of these areas you mentioned that they are exploring, yet they did not have the foresight to develop a Nuc product in house for HCV while others like pharmasset were working on such products. Then out of desparation they had to go and partner a NUC from Alios late in the game. VRTX scientific officer should have been fired for that mis-step in not working on a Nuc early on in the game.

      From the business side, it is very embarrassing that they keep their predictions high only to miss them with their quarterly reports. If anything they should have lowballed their predictions all along so as not to raise expectations and if they surpassed their predictions then no one would have felt disappointed like the market has been for several quarters.

      I also agree with the poster who said VRTX should close some of its non essential facilities in other countries as well as reducing staff in its San Diego facility. They need to reduce the burn rate. After all I invested in this company in 1989. So it has been 23 years and it is absolutely ridiculous for it not to be making money now which it really is not even with the $.13 a shre profit since every quarter there seems to be all sorts of one time charges that gives us a GAAP loss.

      IMO, throughout its history VRTX has acted like a university research facility whose interest is coming up with new treatments in many areas but not paying much attention to the bottom line--the pay off to its shareholders.

      Having said all of the above, I believe the hit we got on Friday was an overkill and even in its present state VRTX shares are way undervalued.

      I would love for other contributors to this board to tell me I am wrong in some of my assessments and recommendations. After all much of my portfolio is tied up in this stock.

    • While I agree with much of what you say- Leiden is perhaps the worst CEO of a major US corporation since, well, Matt Emmens; they are far too unfocused; they are way overstaffed-particulary with salespeople who couldn't sell flood insurance on the Jersey Shore(I live there so I can say that without overwhelming guilt); but a burn rate of $1.2b is overstating the situation.
      They added $100m to increase cash on the balance sheet to $1.3b in the latest Q. Given Ian Smith's comments in the CC and using 2012 as guide I would think they will be cash flow negative in 2013, but only to the tune of $200-300m(perhaps neutral depending on the expediency/level of European Kalydeco reimbursement); and they are certainly not going to run out of cash in 2015.

      Having said that they have bet the farm(my farm) on the outcome of the CF combo therapies and it is stunningly disappointing that we are in this position.

      • 1 Reply to crossroads4040
      • Thanks. I agree with your points but unfortunately I feel the situation is more dire that you may think.

        In the last quarter Vertex burned about $300 million. If they maintain the same burn rate per quarter in 2013 it will be $1.2 billion in 2013, what is ridiculous given the slow progress of the pipeline. If you add all the possible revenues they may generate in 2013, something like $700 million, the difference is about $500 in loses for 2013.

        Ian Smith's comments during the CC sounded scary ... "we are now balancing and calculating the budget/revenues financials for 2013" meaning, "we will lose a boatload of money" ... given how bad they have predicted the last quarters I don't have any confidence their prediction will be good news for the investors ...

        I don't see how 2014 would bring revenues above $700 million as Incivek sales probably will plummet given the new oral combos coming along soon after, and Kalydeco will not be able to compensate for the drop of Incivek revenues ... so assuming another loss of $500 million in 2014, here you have it, $200 of cash left for 2015 ...

        Any delay in approval of the CF combo, and the company will need to dilute tremendously to raise additional capital in the open market by 2015 ... really inadmissible ...

        What Vertex shall do now is close the facility in the UK (it is a useless R&D place that has not generated anything), close the facility in Canada (why do they need any R&D in canada is beyond my comprehension), cut by half the team in San Diego (just keep the core CF team and stop any work on pain, Huntington's, etc), and cut to the bone the R&D in Boston, with just a lean team of R&D that focuses in the core areas of expertise (invectives), dropping oncology, multiple sclerosis, rheumatoid arthritis and IBD ... they have zero assets in these areas and they are burning money like hell ... it is an illusion that early research efforts in these non-core areas would produce value for the company in the next 5-7 years, that is the critical time for Vertex ....

        Making these cuts would reduce the burn rate by at least $400 millions and possibly Vertex would break even in 2013 and 2014, so that they could use the cash they have ( $1.3 billion), to acquire 2 phase II assets (at least one phase III ready asset) that could go to market in 2015, or 2016 the latest ...

 
VRTX
115.15+1.40(+1.23%)Dec 24 1:00 PMEST

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